Trusts are a cornerstone of the estate planning process. Individuals who want to ensure the management of their estate and protect their loved ones can benefit from establishing a trust. As a guarantor, when you establish a trust, you create an untouchable account to hold your assets. Depending on the type of trust you set up, you can safeguard these assets from probate, taxes and more.
Revocable trust to avoid probate
Guarantors can revoke or modify revocable trusts after they finish setting them up. You can change the terms of the trust to account for life events and the changes they bring, such as getting divorced or acquiring new property.
Aside from the flexibility revocable trusts offer, people establish this type of trust because of its probate protection. Any asset you put into a revocable trust will not have to pass through probate court before it goes to your chosen beneficiaries.
Irrevocable trust to minimize estate tax
You are prohibited from amending or changing an irrevocable trust. Moreover, any asset transferred into an irrevocable trust is no longer part of your estate. This can help protect the transferred assets from estate tax, gift tax and even creditor claims.
Spendthrift trust to avoid wasteful spending
Individuals worried about their loved ones squandering their inheritance away can significantly benefit from setting up a spendthrift trust. This type of trust allows you to set conditions before your beneficiaries may access assets. You can:
- Specify fund transfer dates or frequency
- Limit the amount of accessible funds
- Set up exceptions in case of emergencies
Supplemental needs trust for government benefits
Most public assistance programs have eligibility income caps. A special or supplemental needs trust allows you to leave an inheritance to a loved one with special needs while preserving their eligibility for government benefits like Medicaid and Social Security.
Establish a trust with a clear purpose
Before setting up a trust, it is best to have a clear purpose in mind. Ask yourself: what do you want to do with the trust? Who do you want to benefit from it?
The answer to these questions can guide you to the type of trust that best fits your current needs and future plans. Speaking with an estate planning attorney can offer greater clarity on which trust to choose and the overall estate planning process.